The launch of a new delivery service by Amazon.com Inc. (AMZN) should present a major threat to FedEx Corp. (FDX) and United Parcel Service Inc. (UPS), but analysts at Goldman Sachs Group Inc. (GS) are bullish on the two established shippers, Barron's reports.

The main thrust of Goldman's analysis is that a rapid acceleration of global trade, coupled with limited competition for FedEx and UPS outside the U.S., will deliver a significant boost to their earnings that will far outweigh any inroads by Amazon, per Barron's.

The percentage of operating profits generated by package deliveries in the U.S. is about 45% for FedEx and 55% for UPS, according to SupplyChainDive.com. The YTD share price gains for these three companies are, through the November 15 close: Amazon, +15%; FedEx, +16%; and UPS, +2%.

Noise or Substance?

Meanwhile, analysts at Credit Suisse Group (CS) conclude that Amazon's new Seller Flex delivery service is "more noise than anything of substance," according to an earlier Barron's article. They do not see a material impact to FedEx or UPS, given that only a small subset of deliveries that would be affected by Seller Flex actually are handled by the established shippers today. In fact, per Credit Suisse as quoted by Barron's, the vast majority of these deliveries are handled today by the U.S. Postal Service (USPS), leading to the conclusion that Seller Flex ultimately will amount to nothing more than "a shuffling of packages with the USPS network."

More Control By Amazon

Amazon Seller Flex, currently being tested on the West Coast, is intended to speed the delivery of merchandise sold by third-party vendors through Amazon's website, but not warehoused in an Amazon location. The competitive imperative is to increase the amount of third-party merchandise that would be eligible for free two-day delivery to Amazon Prime members, according to PCMag.com.

Additionally, this may allow Amazon to commingle items from multiple vendors in the same shipment to the customer, possibly saving costs. Also, by extending its control to the shipping of this subset of third-party merchandise, Amazon may gain a marketing advantage by further standardizing the customer experience. Lastly, PCMag.com speculates, this give Amazon access to more warehouse space, taking pressure off its own locations, and helping it to reduce costs in the process.

Meanwhile, given its thin profit margins on retail sales, Amazon has a clear imperative to cut fulfillment and delivery costs wherever it can, especially given its widespread offers of free shipping, either for Prime members, or for other customers who meet minimum purchase requirements. Moreover, shipping costs are a large and growing element of Amazon's cost structure, further increasing the imperative to find economies in this area, Market Realist reports.

Prime Air

Amazon has a fleet of 24 Boeing 767 cargo planes, painted with "Prime Air" on their fuselages, CNBC reports. The planes not only are flying to cargo hubs, but also point-to-point as necessary to reduce transit times for Prime shipments by as much as 12 to 15 hours on cross-country journeys, critical time given the Prime membership service's guarantee of 48 hour delivery, CNBC notes.

The planes are operated by two air cargo companies, in which Amazon has the option to acquire equity stakes of up to 20%. Amazon also is investing $1.5 billion in developing an air cargo hub at the Cincinnati/Northern Kentucky International Airport (CVG), near an existing operational center for package delivery service DHL Express.

Opposite View

Disagreeing with Goldman and UBS, Ryan Peterson, CEO of freight forwarder Flexport Inc., writes in his blog that Prime Air and Amazon Flex pose a "grave threat" to FedEx and UPS.

"It doesn't take a big stretch of the imagination to see how it could offer pickups from other businesses," Peterson writes. "Operating its own jets, Amazon could connect the networks of independent contractors in these cities [where Flex is being rolled out] to create an end-to-end express parcel delivery service."

Peterson's understanding of Flex, based on his conversations with Amazon, is that it is intended to make deliveries to the customer's door through a network of independent local delivery services.

Data Privacy Concerns

On the other hand, Peterson notes that Amazon's competitors in the U.S. will be particularly reluctant to use them as a delivery service for imports, preserving an advantage for FedEx and UPS. For example, he says, U.S. Customs requires air freight companies to supply information on the supplier, price, number of units, etc., for each shipment entering the U.S. from abroad, data that Amazon could use to buy the same products from the same supplier, but for less. (For more, see also: Why Kroger Is Avoiding Amazon's Cloud Service AWS.)

Amazon Key

Amazon's forays into delivery service now also includes Amazon Key, a service that allows its delivery people to open a customer's door and drop off a package inside, as described by CNBC. It has been rolled out for use by Prime members in 37 markets where Amazon has contracted with private delivery services. The service, which also allows the customer to grant access to trusted friends and neighbors, requires 24/7 monitoring of one's home via webcam by Amazon. About 61% of U.S. adults recently surveyed find Amazon Key to be too invasive, per Recode.net, with 58% of Amazon Prime members also giving it a thumbs-down.

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